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    Question

    Consider the following statements about inflation:

    1. Inflation occurs when prices are generally increased across the economy. 2. An increase in aggregate demand causes cost-push inflation. 3. Hyperinflation refers to an extremely rapid increase in prices. Which of the above statements are correct?
    A 1 only Correct Answer Incorrect Answer
    B 1 and 2 only Correct Answer Incorrect Answer
    C 1 and 3 only Correct Answer Incorrect Answer
    D 1, 2, and 3 Correct Answer Incorrect Answer

    Solution

    Inflation refers to a general rise in price levels (statement 1). Cost-push inflation is caused by rising production costs, not aggregate demand (statement 2 is incorrect). Hyperinflation describes rapid, excessive price increases (statement 3).

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